Canada's Oil Sands: A Century of Opportunity
Steve Williams, President and Chief Executive Officer
Euromoney Canada-China Investors Forum
June 27, 2012
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KEYNOTE ADDRESS BY STEVE WILLIAMS
Good afternoon colleagues and honoured guests.
It’s a pleasure to join you here in Beijing at the Canada-China Investors Forum.
Congratulations to you Mark and the organizers of this conference for staging this world-class gathering.
Not only does this event shine the spotlight on international investment and capital market opportunities for a diverse audience, it helps to shape productive conversations about issues and trends of critical importance. And we, at Suncor, are delighted to be part of it.
Looking at the conference agenda, it’s not hard to see the ways in which the Canada-China relationship will be examined over the next two days.
From an industry standpoint, I’m excited to be able to share with you my thoughts on what I believe is a long-term economic and energy opportunity for Canada and China. Of course, I’m talking about, the oil sands.
Canada’s Oil Sands: A Century of Opportunity
Many here likely will have heard the term, “Asian century” which is used to describe the thinking that if specific economic and demographic trends continue, the 21st century will be defined by strong economic growth and a heightened living standard for much of Asia.
As we’ve seen with recent Asian Development bank studies, significant gains in GDP certainly have occurred and could continue to occur, given the right conditions.
This is not, however, a certainty. Maintaining this momentum in the 100 years ahead will not only require ongoing engagement in the global economy, but access to reliable sources of energy.
To get a sense of that future, looking at the International Energy Agency’s projections is instructive. Here’s a snapshot of the IEA’s view of how things will look 25 years from today:
- Global energy demand increases by as much as 40 percent, driven mainly by growing populations and improved living standards in China and India, among others.
- Fossil fuels remain dominant — supplying 75% of global primary consumption in 2035, compared to 81% today.
- Oil remains the primary source of transportation fuel, increasing from 87 million barrels per day in 2010, to 99 million barrels per day in 2035.
- Renewables become a bigger part of the energy mix, but it happens relatively slowly. The share of non-hydro renewables in power generation increases from 3% to 15% in 2035.
What’s clear from the IEA’s projections is that the world will continue to need safe, reliable and affordable sources of energy over the next quarter-century – and likely for much longer than that. And oil will need to be a part of that mix.
With a welcoming investment climate and abundant oil reserves, Canada and the oil sands are extremely well-positioned to meet these needs.
These two factors create a century of opportunity — one which together, is ours to pursue.
If you take a look at the oil sands, it is the very definition of a legacy resource. Along with Saudi Arabia and Venezuela (you pick the order, depending on recent reports), it is one of the world’s largest oil reserves.
And that’s with today’s technology. With tomorrow’s, it could potentially be the biggest reserve, bar none.
Because the oil sands contain a century or more of supply, and because they involve no further exploration risk, there is an opportunity to map out a long-term plan of development. Over the next 25 years alone, the Canadian Energy Research Institute projects more than $2 trillion will be invested in oil sands development.
Not surprisingly, this resource has generated attention the world over. While Suncor had been a pioneer in oil sands development, commencing operations as Great Canadian Oil Sands in 1967, we have been joined by large companies from around the world, including Shell, Total, and now Sinopec, to name just a few.
What’s attracted these companies is not only the sheer size of the reserves, but just as important, a stable political climate, significant private sector development opportunity and predictable and responsible regulatory and fiscal regimes.
As you all know, these are prime conditions to provide energy for our and future generations, and consistently attract business with the promise of significant long-term economic benefits.
Oil sands will be a big part of our energy future for decades to come.
Competitive Differentiators: Suncor is Well-positioned
At Suncor, we’re acutely aware of the scale of the opportunity just described for you. And we firmly believe this is “our time.” This isn’t something we take lightly. When we say “our time” we mean it’s:
- “our time” to demonstrate how reliable operations can lead to increased profitability and highlight our disciplined approach to an impressive suite of growth projects ...
- “our time” to leverage the strength of our integrated business model to create shareholder value ... and
- “our time” to embrace technology and collaboration to further drive improvements in environmental, economic and social performance
And we say that with the confidence of some key competitive strengths.
To begin with, we have an enviable resource base, including the largest position in Canada’s oil sands. It provides a foundation for us to generate profits and grow in a disciplined manner for decades to come.
To give you a sense of that magnitude, we have over 35 years of production at current rates, assuming that all 7.1 billion barrels of proved and probable reserves are produced at our 2011 production rate of 546,000 barrels per day. If you were to add contingent resources of 21.9 billion barrels, that could mean more than 100 years of production.
And we’re working hard to monetize our reserves through a balanced portfolio of mining, in situ and upgrading projects.
As I mentioned earlier, a second key strength is our integrated model, which includes oil sands and offshore production, upgrading, refining and marketing through the Petro-Canada brand, as well as a growing renewables business. This model, as well as the integrated nature of our planning is unique to Suncor and we consider it a distinct advantage over our competitors.
Let me explain further. The bulk of our production comes from oil sands, which has higher extraction costs but lower geological and political risks relative to most conventional oil. Our integrated model means that we’re not solely dependent on bitumen prices.
We upgrade most of our current bitumen production into more valuable light products, and we have made significant investments in our refineries to process these barrels into refined fuels and specialty products. We are also geographically diversified by having offshore and international oil and gas production which is sold into premium-priced markets.
In the past year, when bitumen prices lagged against WTI, which in turn lagged against world crude oil prices, our upgrading capacity enabled us to capture some of the spread between WTI and bitumen prices. Our refining network, meanwhile allowed us to capture a large portion of the spread between WTI and world oil prices (since refined product prices are tied to global markets).
At the same time, our diversified assets across Canada’s East Coast, the North Sea, and the Middle East have been selling into the world market at Brent Crude related prices.
Overall, this "ground-to-gas-station" structure means we have many sources of profit, helping to balance volatility caused by varying commodity prices and reducing our financing risk through both good and bad economic cycles.
The bottom line is that thanks to our integrated model, we’re able to realize 93% of global prices for our output.
And, thanks to solid performance both operationally and financially, we are in the best position we have ever been to produce energy and maximize shareholder value going forward.
This is reflected in a strong balance sheet, which is supported by revenue streams from both the upstream and downstream.
A key focus, and one I’m very excited about, is technology. This has helped us improve efficiencies, as well as drive down our environmental footprint.
By this, I mean game-changing innovations like TRO, our tailings management approach, which will allow us to reclaim land in a third of the time required by older technologies. All of the competitive strengths, I’ve mentioned are made possible by a dedicated team of 13,000 plus employees, whose energy and enthusiasm continually remind me of their unwavering commitment to our shareholders, customers and stakeholders.
So hearing all this, I’m sure you’re asking: why would I seek out Suncor?
The answer is actually quite simple, and it’s reflected in what we’re doing to deliver on our business strategy, which is focused on:
- profitably operating and developing our oil sands resources — remember we do this through demonstrating reliable operations and disciplined growth
- optimizing value through integration
- achieving industry leading unit costs in each business segment — again, this comes at least in part from delivering on reliable operations, and
- being the industry leader in sustainable development — part of our success here is through delivering on innovative technology and collaborating with our industry peers.
We continue to deliver on that strategy. In 2011, we achieved record cash flow, earnings and production.
This included operating earnings more than doubling to a record $5.7 billion. And, our cash flow was the highest ever at almost $10 billion.
This strong balance sheet is allowing us to make significant capital investments, entirely funded from internal cash flow.
Oil sands production in 2011 was 304,700 barrels of oil equivalent per day. And in 2012, our guidance is for a range of 325,000 to 355,000 barrels in oil sands, and total production in the range of 530,000 to 580,000 barrels of oil equivalent/day.
Looking forward, our plan is to boost total production to more than one million barrels of oil equivalent per day over the next decade.
That growth plan involves targeting average oil sands production growth of about 10 percent per year and company-wide production growth of about 8 percent per year to 2020 — rates expected to outperform most major energy companies.
In 2012, for example, we’re aiming to spend $7.5 billion in capital, with almost 50 percent of that focused on growth.
One thing I want to stress is that, while our growth plan includes goals and targets, we will not be held captive to timelines if circumstances signal the need for reassessment.
This capital discipline is based on our commitment to generating long-term shareholder value and delivering our growth projects in a responsible and cost-effective manner.
Having said that, I believe our financial performance bodes well for Suncor’s capacity to deliver sustained and profitable growth.
Our 10-year plan may be one of the most ambitious of its kind in the oil sands industry, but we are also uniquely positioned to deliver on that strategy.
As you can imagine, in today’s world, our financial and operational performance is only one part of the equation.
I mentioned a key part of our strategy being sustainability.
For us, that includes improving our environmental performance which is not only the right thing to do; it makes good business sense.
Every barrel of water that we conserve and every emission that we reduce at our operations means lower input costs and support our license to operate and grow, which in turn translates to value for our shareholders and stakeholders.
And I’m pleased to say we’re making real progress. Here’s just a few quick examples:
- Greenhouse gases per barrel at our mining operations have been cut nearly in half since 1990.
- We’ve reduced our freshwater intake by more than 30% over the past six years. Our fresh water use is now the lowest since 1998 in absolute terms, despite tripling production.
- We’ve made great strides in reclaiming land and are proud to have announced the successful surface reclamation of Pond One, our first tailings pond - now known as Wapisiw Lookout.
- As part of our climate change action plan, we’ve also committed to developing renewable energy. Today, we’re one of Canada’s biggest investors in wind power, with six wind farms and Canada’s largest ethanol plant as important parts of our operations.
Going forward, our focus on improvement will continue. In 2009, we set some environmental goals for 2015, including:
- Reducing fresh water consumption by 12%
- Increasing reclamation of disturbed land area by 100%
- Improving energy efficiency by 10%, and
- Reducing air emissions by 10%
All of the reductions are absolute, with the exception of energy efficiency, which is intensity-based. We believe we are on the right track, but are the first to admit we still have a long way to go and we remain committed to do just that.
Industry Collaboration: COSIA and Other Partners
We’re also encouraged that we have been joined by others in responding to the environmental challenge.
You may have heard earlier this spring that Suncor joined 12 other oil sands companies to announce the formation of Canada’s Oil Sands Innovation Alliance, or COSIA.
We’re particularly pleased to be standing shoulder-to-shoulder in that effort with our joint venture partner, Total E&P Canada, as well as Syncrude, of which both Suncor and Sinopec are part owners.
COSIA is our industry’s public commitment to our stakeholders. It’s meant to say we are ready, willing and able to respond to our stakeholders’ expectations and accelerate the pace and scope of our environmental performance improvement.
To our knowledge, COSIA is the largest collaborative effort of its kind in any industry, anywhere in the world. Early days are encouraging and we’re looking forward to more progress in the days, months and years ahead.
Looking Forward: Market Opportunities
The abundant resource wealth that I’ve outlined, produced and operated reliably ... the sound investor proposition that Suncor has created, delivering value through a fully integrated model ... and the exciting environmental collaboration underway… point to a bright future for both our countries.
Canada has a wealth of energy resources. China is growing, has an insatiable demand for resources, including energy, and has made significant investments in the oil sands. And trade between our two countries continues to grow.
With the prospect of marketing oil sands crude from Canada to China on the horizon, now is the time — or “our time,” if you will — to be building relationships that allow us to drive expanded energy and economic trade between our nations.
An ancient philosopher once said “luck is what happens when preparation meets opportunity
We really do have a century of opportunity ahead of us. To take full advantage of it, I encourage each of you here today to prepare by taking a closer look at Canada, the oil sands, and Suncor.
And I’m certain you’ll find, that by working with us, we’ll be in a great position to share in that good fortune.
Thank you for your time and I’d be happy to entertain your questions.